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Thursday, 30 June 2016

Japanese Prime Minister Shinzo Abe pledged on Wednesday to use all available policy tools to keep the wheels of the economy turning as financial markets were gripped by uncertainty in the wake of Britain's shock vote to exit the European Union.

The yen's spike following the referendum has kept Japanese policymakers on edge as a stronger currency threatens to put more pressure on the export-reliant economy, already reeling from weak demand at home and abroad.

Retail sales fell more than expected in May, data showed earlier in the day, keeping policymakers under pressure to roll out more stimulus.

"Consumer spending has been stagnant and the trend is likely to continue for a while due to sluggish growth in wages," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

In a meeting to discuss post-Brexit market developments, Abe urged Bank of Japan (BOJ) Governor Haruhiko Kuroda to ensure the central bank provides ample funds to the market to prevent any credit squeeze.

"A sense of uncertainty and worry about risks remain in the markets," Abe told the meeting, the second between the government and the BOJ since the June 23 referendum.

The premier also called on Finance Minister Taro Aso to keep a close watch on currency moves and respond flexibly to market developments in coordination with Group of Seven economies.

Abe is expected to hold similar meetings regularly as Tokyo looks to put safeguards in place against potential instability in financial markets after Britain's messy EU divorce.

The rush of money to safe havens such as the yen has been stoked by fear Brexit would adversely affect Britain's economy and undermine already fragile growth in the EU, causing more disruption in global investment and trade.

FX INTERVENTION, BOJ STIMULUS

Japan stepped up threats to intervene to weaken the yen after the Brexit vote drove the currency to multi-year highs, but the risks of a costly failure may dissuade policymakers from matching their words with action.

Still, Masahiko Shibayama, an adviser to the premier, said unilateral yen-selling intervention cannot be ruled out to counter excess speculation, adding that the central bank should stand ready to expand its already massive monetary stimulus.

"We won't hesitate to take action against excess speculation," he told Reuters in an interview.

The dollar firmed to 102.63 yen on Wednesday, moving away from a 2-1/2-year low of 99.00 touched on Friday.

Former top BOJ economist Hideo Hayakawa told reporters the central bank could be forced into further easing at the July 28-29 policy meeting given prices are undershooting its forecasts. However, he shrugged off speculation about the BOJ holding an extra policy meeting before that.

The BOJ is wary of rushing into expanding its monetary stimulus, preferring to wait and see if the market turmoil lasts long enough to threaten Japan's economic recovery, sources say.

Hence, analysts see Abe's meetings as more a symbolic move to show the public the government is doing what it can to contain damage ahead of a July 10 upper house election in Japan.

"There's not a lot of policy tools left for authorities to reboot the economy. Therefore, Abe has no choice but hold meetings one after another at least until the July election," said Yasuji Yajima, chief economist at NLI Research Institute.

"If the yen spikes beyond 100 to the dollar, authorities would intervene in the currency market but I doubt whether it could have a lasting impact," he said.

Japan's economy expanded at the fastest pace in a year in the first quarter but analysts say growth will not pick up much for the rest of this year as slow wage gains weigh on consumption. External headwinds, such as weak emerging market demand and the yen's gains, also cloud the outlook for exports.

Worried about the additional hit from Brexit, the government is willing to spend at least 10 trillion yen (73 billion pounds) on a stimulus package, sources have told Reuters.

Britain's top share index climbed for a second straight session on Wednesday, led higher by financials and commodities-related stocks on expectations the Brexit process might not start anytime soon.

The blue-chip FTSE 100 index .FTSE was up 1.7 percent at 6,243.04 points by 0757 GMT, building on the previous session's 2.6 percent jump. Stocks fell sharply on Friday and Monday after Britain voted in a referendum to leave the European Union.

Britain's outgoing Prime Minister David Cameron said he had not faced overwhelming pressure to trigger immediately the exit clause in the EU treaty, despite some public statements to the contrary.

"Traders are focusing on a more positive side and they pounce on the opportunities which have arisen from the recent sell-off and try to bag some bargains," Naeem Aslam, chief analyst at TF Global Markets, said.

Financials, which had slumped in the aftermath of last week's Brexit vote, were among the top gainers.

Chris Beauchamp, senior market analyst at IG, also said that there were a lot of opportunities to buy companies at cheap valuations with good yields.

"At least you know you're getting it cheaper than you were last week and that you can ride out some of the volatility," he said. "If you've got a time-frame that extends beyond the end of next week ... then you want to go buying stuff if you can," he added.

Tour operator, however, fell 4.3 percent after JP Morgan cut its target price on the stock.

Wednesday, 29 June 2016

Wall Street opened sharply higher for the second day on Wednesday as the initial panic surrounding Britain's vote to leave the European Union settled and investors looked for bargains among beaten-down stocks.

The "Brexit" verdict on Friday sent shockwaves through global markets, wiping out about $3 trillion in a two-day selloff.

The S&P financial stocks index .SPSY, which was hit the most since the referendum - was up 1.27 percent, making it the biggest percentage gainer among the 10 major sectors.

Bank of America (BAC.N) and JPMorgan (JPM.N) were among the top influences on the S&P, while Goldman Sachs' (GS.N) provided the biggest boost to the Dow.

Adding to the upbeat sentiment, data showed U.S. consumer spending, which accounts for more than two-thirds of economic activity, increased 0.4 percent in May.

Investors are now hoping that central banks around the world will ease monetary policy to weather the storm as Britain and the EU chalk out the next steps for the country's exit from the trading bloc.

"The central banks will stay ready and you'll probably see a couple of policy easings from the Bank of England and I think the likelihood of Fed increases are probably low," said Ernie Cecilia, chief investment officer of Bryn Mawr Trust in Pennsylvania.

Britain's vote could pose a new drag on the U.S. economy at a time when momentum in the job market may already by slowing, Federal Reserve governor Jerome Powell said on Tuesday.

Traders have priced in a mere 17 percent chance of a hike as late as December, according to CME Group's FedWatch tool.

At 9:35 a.m. ET (1335 GMT), the Dow Jones Industrial Average .DJI was up 142.14 points, or 0.82 percent, at 17,551.86. The S&P 500 .SPX was up 18.65 points, or 0.92 percent, at 2,054.74. All the 10 major S&P indexes were higher.

The Nasdaq Composite .IXIC was up 48.84 points, or 1.04 percent, at 4,740.71.

Mallinckrodt (MNK.N) rose 4 percent to $58.50 after BMO started coverage with an "outperform" rating. The stock was the biggest percentage gainer among S&P components.

General Electric (GE.N) rose 1.7 percent to $30.47 after the Financial Stability Oversight Council removed a "systemically important" label from its lending unit.

Advancing issues outnumbered decliners on the NYSE by 2,527 to 235. On the Nasdaq, 1,966 issues rose and 307 fell.

The S&P 500 index showed 33 new 52-week highs and no new lows, while the Nasdaq recorded 14 new highs and 11 new lows.

The yen gained in Asian trade on Wednesday while a semblance of stability helped the pound and the euro hover above their post-Brexit lows, though the battered European currencies remain hampered by longer term uncertainty.

Even as the markets' risk averse mood eased slightly and regional equities gained, lessening the appeal of the perceived safe-haven yen, the dollar shed 0.4 percent to 102.34 yen JPY=. But it held far above its 2-1/2-year low of 99.00 touched in highly volatile trade on Friday in the immediate aftermath of the UK referendum.

"Dollar/yen is its own beast now," and is not just moving on risk sentiment, said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets. "Pretty much everyone has been calling for a stronger yen, and that's generally the trend, so you don't go long dollar/yen and you look for rallies to sell into."

Japanese authorities have warned in the past that they could intervene in the currency market to stem the yen's rise, but traders suspect the hurdle for yen-selling intervention is high.

At the same time, worries over how Brexit could disrupt the global economies are likely to keep many investors cautious.

"A sense of uncertainty and worry about risks remain in the markets," Japanese Prime Minister Shinzo Abe said at a meeting between the government and the Bank of Japan to discuss market developments after the Brexit vote rocked global financial markets.

The meeting was the second between Abe and the BOJ after Britain's shock vote to exit the European Union, with more expected as Tokyo looks to put in place safeguards against potential instability in financial markets.

The euro skidded 0.5 percent against the Japanese currency to 113.23 yen EURJPY=

The British pound fetched $1.3337 GBP=D4, little changed on the day and holding well above Monday's 31-year low of $1.3122.

The euro also stabilised at $1.1067, off its 3 1/2-month low of $1.0912 hit on Friday.

Against sterling, the common currency traded at 82.95 pence EURGBP=D4, within sight of its Monday's high of 83.80, its highest level in more than two years.

"The pound may not visit the lows touched earlier in next couple of days, but it will likely do so if we look at a longer time frame, say to September or December," said Masafumi Yamamoto, chief FX strategist at Mizuho Securities.

As European currencies recovered some of their poise and the yen firmed, the dollar index, which tracks the greenback against a basket of six major currencies .DXY =USD ticked down 0.2 percent to 96.038, pulling away from Monday's high of 96.705.

The dollar had risen on Tuesday after U.S. first-quarter economic growth was revised up to 1.1 percent from the previous reading of 0.8 percent.

But undermining the dollar, U.S. money markets are pricing out any chance of the Federal Reserve raising interest rates in the coming 12 months, suggesting a tempering of the currency's yield allure.

Elsewhere, the Turkish lira was stable so far after attacks by suicide bombers killed 28 people in Istanbul's main international airport, Europe's third busiest.

Asian share markets joined a global rebound on Wednesday as the immediate drag from the Brexit vote began to ebb and investors wagered central banks would ultimately ride to the rescue with more stimulus measures.

Any bounce was welcome, given global equity markets shed $3 trillion in value in the two days following Britain's shock vote, according to S&P Dow Jones Indices. Investors also pointed to solid U.S. economic data as helping to steady the ship.

Yet Britain's course out of the EU remains unknown, leaving the future of the entire bloc and its currency an open question.

"The only certainty in Europe is uncertainty," said analysts as Australia and New Zealand Bank in a note.

"European leaders appear to want to move forward with Brexit plans as quickly as possible, but political turmoil within Britain suggests a quick turnaround is unlikely."

The unease was evident in sterling which slipped a third of a U.S. cent over the morning to huddle at $1.3309, not far from the recent 31-year low of $1.3122.

The euro regained only a little ground to $1.1060, while the safe-haven yen steadied at 102.42 per dollar.

For now, investors are counting on central banks to step in with fresh stimulus to support markets over time.

In the first of Federal Reserve policymakers to comment since the vote, Governor Jerome Powell said it had shifted global risks "to the downside."

That only reinforced market expectations the Fed will no longer be able to hike U.S. rates this year, and could even be forced to cut if the domestic economy falters.

YIELDING LESS THAN NOTHING

On Wall Street, the Dow rose 1.57 percent, while the S&P 500 gained 1.78 percent and the Nasdaq 2.12 percent. Badly beaten-down financials and tech stocks were among the top gaining sectors.

The calmer mood was reflected in the CBOE Volatility Index which fell about 21 percent on Tuesday to close to where it was before the vote. It was its largest one-day percentage decline since August 2011.

Aiding sentiment were data showing the U.S. economy grew at a 1.1 percent annualized rate in the first quarter, rather than the 0.8 percent pace reported last month.

Yet concerns about the impact of Brexit on global growth and all the talk that central banks might have to ease anew to offset it, kept sovereign bonds well supported.

Yields on U.S. 10-year notes held at 1.47 percent, just above a near four-year low of 1.406 percent hit on Friday. Comparable German and Japanese bonds are into record territory and pay negative yields.

Indeed, all Japanese bonds out to 40 years now offer less than 0.1 percent, a nightmare for pension funds and insurers desperate for a "decent" return.

In commodity markets, gold stepped back after two heady days. Spot gold was holding at $1,319.40 an ounce, but off a low of $1,305.23.

Oil prices gained as a looming strike by Norwegian oil and gas field workers threatened to cut output. There were also reports oil producers and refiners in crisis-struck Venezuela were struggling to keep output up.

U.S. crude oil futures were up 40 cents at $48.25, while Brent crude rose 27 cents to $48.85.

In currency markets, sterling GBP=D4 was changing hands at $1.3297, after falling to a three-decade low of $1.3122 on Monday, its deepest trough since 1985.

Against the yen, sterling rose 1 percent to 135.72 GBPJPY=R, not far from Friday's 3-1/2 year low of 133.18. The euro stood at 82.93 pence EURGBP=R after scaling a two-year peak of 83.79 pence on Monday.

The euro edged down slightly to $1.1041 EUR=, not far above Friday's three-month low of $1.0912 as it faced the impact of the British vote outcome.

"In the near term, risk aversion and market uncertainty makes the euro less attractive to investors," Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, wrote in a note to clients.

"In the long run, Brexit also raises questions about the Eurozone's viability because if major countries like Britain start dropping out the EU, nationalism could drive smaller Eurozone nations to exit out of the euro," she said, adding that she expects the euro to "make another run" for the $1.0900 level.

Early signs of a cautious return in demand for riskier assets was evident in the high-yielding Aussie AUD=D3 and the New Zealand dollar NZD=, which helped put a floor under other emerging market currencies in Asia.

Anticipating yet another round of global policy easing by major central banks, government bond yields pushed deeper into negative territory. Yields on ten-year and 20-year Japanese debt plunged to fresh record lows.

Gold XAU=, one of the rare outliers in global financial markets in the last few days, came in for a bit of profit taking with the precious metal down 0.3 percent. Silver XAG= fell 0.4 percent.

British financial markets were engulfed in further turmoil on Monday, with 10-year government borrowing costs sinking below 1 percent for the first time and sterling hitting a 31-year low against the dollar as investors bet Britain's vote to leave the EU will trigger a Bank of England rate cut.

Billions of pounds were wiped off the value of British bank stocks as a political vacuum and economic uncertainty opened up by Thursday's referendum prompted widespread downward revisions to the outlook for UK growth, sterling and interest rates.

Sterling fell as low as $1.3122 GBP=, a decline of almost 4 percent to its lowest since September 1985, and bond yields chalked up their biggest two-day fall since the BoE started its quantitative easing bond buying binge in March 2009.

The market value of Barclays (BARC.L) and Royal Bank of Scotland (RBS.L) is down by a third in just two days, meaning the UK taxpayer has lost 8 billion pounds since Thursday via the Treasury's 72 percent stake in RBS.

"The UK economy is headed for recession," analysts at Llewelyn Consulting said on Monday.

"Potential output has been cut at a stroke (and) the country's large twin deficits leave it exposed to capital flight. Only the Bank of England remains fully functional. It has the tools to ensure financial solvency, but not economic activity," they said

Finance minister George Osborne said on Monday the economy would have to face up to "an adjustment" as it dealt with the fallout of 'Brexit'. But investors again shunned the pound and sought the safety of government bonds.

UK money and bond markets moved to price in lower interest rates, with swaps rates now almost fully implying a 0.25 percentage-point cut from the BoE by the end of the year.

The yield on 10-year UK government bonds tumbled as much as 15 basis points to a new low of 0.933 percent and two-year yields fell more than 10 basis points to a four-year low of 0.129 percent

The 10-year yield has fallen 44 basis points since Thursday, its biggest two-day fall since March 2009.

"You'd have expected there to be some psychological barrier to gilts breaking through 1 percent, but not today," said Luke Hickmore, senior investment manager at Aberdeen Asset Management.

"Gilt yields just kept dropping. It's no wonder. There's no political leadership in the UK right when markets need the reassurance of direction," he said.

Sterling fell almost 4 percent against the dollar to a fresh 31-year low of $1.3122 GBP=, and the euro rose almost 3 percent to 83.64 pence EURGBP=, its highest in more than two years.

The pound's fall on Friday was the largest in modern history, reaching more than 10 percent against the dollar at one stage, and was also the largest decline since at least the 1970s on a trade-weighted basis.

RBC Capital Markets now expect the BoE to cut rates by 25 basis points next month to 0.25 percent, and again in August down to 0.1 percent along with an additional 50 billion pounds of quantitative easing bond-buying stimulus. Several banks, including Goldman Sachs and Bank of America Merrill Lynch, cut their sterling forecasts too.

"With the Leave vote creating greater uncertainty over the outlook for the economy and BoE policies biased towards further easing/renewed QE, sterling is vulnerable to further near-term selling pressure," said Athanasios Vamvakidis, FX strategist at BAML.

"A push below $1.30 cannot be ruled out," he added.

Others, like Unicredit, reckon the pound will fall even further, perhaps to $1.20 or even lower.

Monday, 27 June 2016

European bank shares and sterling were on track for their biggest two-day slides on record on Monday as the fallout of Britain's shock vote to quit the European Union sowed turmoil in global financial markets for a second day.

U.S. index futures were down 0.7 percent, indicating Wall Street would follow European markets down.

Investors sought safe havens such as the yen, gold and low-risk government debt. Moves were not as extreme as on Friday when stocks fell by their most in almost five years but the combined falls on Friday and Monday broke records in some assets.

British finance minister George Osborne sought to reassure markets, saying the world's fifth-largest economy was strong enough to cope with the Brexit-inspired volatility, but the positive impact on sterling was only fleeting.

"This Brexit decision has taken the markets by total surprise. I would remain on the sidelines - no reason to step in yet," said Hampstead Capital hedge fund manager Lex Van Dam.

Markets bet on a further cut in Bank of England interest rates, almost fully pricing in a 25 basis point cut by the end of the year in another blow to sterling and to banks already facing reduced earnings as a result of Britain leaving the EU.

An index of European bank shares .SX7P fell 7.5 percent, taking the decline in the last two trading days to around 20 percent, equating to a loss of 168 billion euros in market capitalisation. Royal Bank of Scotland shares (RBS.L) fell 23 percent while Barclays (BARC.L) shed 18 percent.

Italian banks also suffered. UniCredit (CRDI.MI) fell 7.7 percent. The government was looking at options to help its banks and prevent further share price falls.

The pan-European FTSEurofirst 300 stocks index .FTEU3, which fell 7 percent on Friday in its biggest plunge in nearly eight years, lost a further 2.9 percent on Monday, for its biggest two-day fall since the aftermath of the Lehman collapse in 2008.

Spain's IBEX index .IBEX initially rose after acting prime minister Mariano Rajoy's People's Party fared better than expected in weekend elections but the gains melted away and the index was last down 1.4 percent.

World stocks measured by MSCI hit their lowest level since March, down 0.9 percent. The index's fall since the Brexit vote was its biggest since last August when sharp falls in Chinese shares slammed work markets.

Sterling fell nearly 4 percent to $1.3152, surpassing its Friday low as yields on 10-year British government debt fell below 1 percent for the first time

It fell 2.5 percent to 83.33 pence against the euro EURGBP= and 3.9 percent to about 134 yen GBPJPY=.

"Uncertainty equals currency weakness, we know this, and there is no sense that this (sterling) is a value trade right now and that you have to get back in. It is too early for anyone to start calling a bottom," said Neil Mellor, a currency strategist at Bank of New York Mellon in London.

The euro EUR=, also seen vulnerable to the exit from the EU of its second-largest economy, fell 1.3 percent to as low as $1.0969. The yen firmed to as high as 101.37 per dollar JPY=.

Government officials stepped up warnings that they could intervene in currency market to stabilise the yen, whose strength harms exporters.

Yields on core government debt fell again. German 10-year bond yields , the benchmark for euro zone borrowing costs, fell as low as minus 0.11 percent but held above Friday's record low of almost minus 0.17 percent.

Spanish 10-year bonds outperformed those of other lower-rated southern euro zone countries. Their yields were down 18 bps at 1.46 percent after Sunday's election.

U.S. Treasury yields also fell. The 10-year note fell more than 10 bps to as low as 1.46 percent, still above Friday's low of 1.41 percent.

Gold XAU=, which saw its biggest rise since 2009 on Friday, stood at $1,329 an ounce, up 1.1 percent on the day.

Brent crude oil was higher in Asian trade on a view that Brexit would have minimal impact on global oil demand. But, by midday in London, it was down 18 cents at $48.23 a barrel.

Asian stocks fell and the British pound tumbled more than 2 percent on Monday as markets struggled to shake off deep uncertainty sparked by Britain's decision to leave the European Union.

Sentiment remained weak even though the worst of the turmoil seen on Friday, when global stock markets suffered their biggest decline in nearly five years, had eased.

"Things are so uncertain that investors still do not have a clear idea how much risk assets they need to sell," said Hiroko Iwaki, senior foreign bond strategist at Mizuho Securities.

"But it is safe to assume investors are not yet done with all the selling they need to. I wouldn't be surprised to see another 10 percent fall in share prices," she added.

Among many questions the British exit, or Brexit, has triggered are just how much UK and European economies will slow, how they will negotiate their new relationship and how European leaders will try to boost the crumbling European Union.

MSCI's broadest index of Asia-Pacific shares outside Japan shrank losses to 0.6 percent as companies with UK exposure in particular came under more pressure.

Financials led declines in Australia and Hong Kong with the sector seen the among worst hit by Brexit and the prospect of London losing its prized "EU passport".

"We think Brexit could just be the first surprise in a re-calibration of the world away from globalization towards more inward looking policymaking," Ajay Singh Kapur, equity strategist at Bank of America Merrill Lynch in Hong Kong, wrote in a note.

China's Li says Brexit has increased global uncertainty
"Brexit has now possibly opened up more uncertainty about the European Union project, and that the already beated down Asian and emerging markets equity markets could receive asset allocation flows from Europe," he added.

Japan's Nikkei .N225 extended gains to 1.9 percent, a partial rebound after Friday's hefty 7.9 percent fall. Japanese stocks were helped by stronger warnings from Japanese officials that they may intervene in currency markets to stabilise the yen.

Chinese shares also gained, with the CSI 300 index .CSI300 and the Shanghai Composite .SSEC both up about 0.8 percent.

The British pound fell 2 percent to $1.34 still some distance from the 31-year low of $1.3228 touched during Friday's wild trade.

The euro EUR= also came under further pressure, falling 0.8 percent against the dollar, as investors fret Brexit could stoke the anti-establishment mood in Europe and even talk of disintegration of the union.

"(There will be) sell-off in the euro as talk of other exit referenda builds," said Jerome Booth, chairman of New Sparta Asset Management in London.

"This sell-off will be more profound and long-lasting and will be not just against the dollar and yen but also against the pound. It will also raise fears of significant loss of values for holders of Euro-zone government bonds."

The euro fell to $1.1028, edging closer to Friday's 3-1/2-month low of $1.0912.

The euro's weakness helped to push the Chinese yuan to its weakest level against the dollar since December 2010 on Monday. It fell to 6.6396 per dollar after opening at 6.6360 per dollar, compared with the 5 1/2-year low midpoint level of 6.6375 set by the central bank, and touching an intraday low of 6.6469.

But in a sign Britain's shock decision to leave the European Union may be encouraging Europeans to seek the safety of the status quo, support for Spain's conservative People's Party surged in Sunday's general election.

Oil prices fell more than 1 percent in early trade, with international benchmark Brent futures down 0.3 percent to $48.28 per barrel.

U.S. crude CLc1 slipped 0.5 percent to $47.40.

Demand for safe haven assets such as government debt and precious metals remained strong.

The 10-year U.S. debt yield dropped to 1.5020 percent. On Friday, it fell as low as 1.406 percent, near its record low of 1.381 percent marked in July 2012.

U.S. interest rate futures have completely priced out any chance of a rate hike by the Federal Reserve this year and are pricing in less than 50 percent chance of a rate hike even by the end of 2017.

Bank of England Governor Mark Carney said on Friday the central bank was ready to provide 250 billion pounds of additional funds to support financial markets after Britain voted to leave the European Union.

He also said the central bank will consider whether to take additional policy responses in the coming weeks.

Britain's 2.2 million financial industry workers face years of uncertainty and the risk of thousands of job cuts after the country voted to quit the European Union, leaving question marks over London's status as Europe's premier financial centre.

The 'Vote Leave' campaign fronted by a slew of Conservative lawmakers and financial industry veterans claimed victory over its 'Britain Stronger in Europe' rival, after 52 percent of Britons voted to support their plan to leave the 28-nation club.

A morning of triumph and jubilation for the Brexit camp has been overshadowed by an average 13.4 percent fall in the share prices of the top five British banks and slides of 12-14 percent in elite wealth managers Schroders (SDR.L), Aberdeen Asset Management and St. James's Place (SJP.L).

The impact also sent ripples across the region and European bank shares tumbled more than 13 percent .roughly twice as steep a fall as that seen among big companies, with lenders in Italy and Greece hard hit.

A leave vote means the future of Britain's financial services industry is now hanging in the balance.

All depends on the divorce between Europe and Britain, the latter's ability to retain access to the European free market, and cope with the volatility that has seen sterling nosedive against major global currencies.

The mood in the restaurants and coffee shops in the high-rise banking hub of Canary Wharf, home to JPMorgan JPM.L, Citi (C.N), HSBC (HSBA.L) and Barclays (BARC.L), was sober and contemplative, with job security fears rising to levels unseen since the 2008 financial crisis.

Investment banks have already warned they could move thousands of jobs if Britain opts out of the EU, while the European Central Bank has signalled it could force euro trading out of London, the world's largest foreign exchange market.

But some sought to play down fears of a catastrophic hit to Britain's banking sector, pointing to extensive contingency planning and many years of experience navigating crisis.

Goldman Sachs (GS.N) Chairman Lloyd Blankfein and Jes Staley, CEO of Barclays which suffered the biggest one-day fall in its share price on record on Friday - said their banks had long histories of adapting to change and would work with relevant authorities as the terms of the exit become clear.

HSBC Chairman Douglas Flint said the day marked a new era for Britain and British business, describing work to establish fresh terms of trade with European and global partners "as complex and time consuming".

Wall Street bank Morgan Stanley (MS.N) said the significance of the decision would not be known for some time.

A person familiar with the matter earlier told Reuters the bank could move around 1,000 of its roughly 6,000 employees currently in Britain to elsewhere in Europe if Britain quit the EU.

Jamie Dimon, CEO of rival JPMorgan, told staffers his bank "may need to make changes to our European legal entity structure and the location of some roles to comply with new laws as we serve our clients around the world", casting a pall over its 16,000 strong workforce.

However, the City of London Corporation, which oversees the capital's financial district, said the leave vote should not lead to a major exodus.

"There will be no mass exit of banks and financial institutions from the Square Mile," Mark Boleat, policy chairman for the City of London Corporation, said in a statement.

"The general view of the City is that the government should push for the UK to retain our access to the single market," Boleat said.

The British Bankers' Association Chief Executive Anthony Browne moved to reassure people that banks across the country would be operating as normal.

Months of bitter campaigning has left the industry - which earned the nation 190 billion pounds in 2014 - divided, with investment banks and insurers pitted against many fund managers and brokers who wanted a Brexit.

Property investor Richard Tice, a co-founder of Leave.eu, a British Out campaign, and one of the few prominent City figures in favour of leaving, told Reuters he cried tears of happiness after the vote.

"There is huge joy, delight and pride. We have changed the course of history in the UK. It is very simple, everyone needs to calm down and do what we do well which is working and playing hard."

But there was little of that joy in trading rooms.

Sterling fell to its lowest level since 1985, the year before Britain's deregulation of financial markets that helped propel the City of London into one of the world's major financial centres in the so-called 'Big Bang'.

All the major international and British banks in London had traders either working through the night or on call.

"Leave's victory has delivered one of the biggest market shocks of all time ... Panic may not be too strong a word," Joe Rundle, head of trading at ETX Capital, said.

Sources at banks said memos emailed internally to rattled employees advised them to think about clients first.

"...The juniors are freaking out. I will tell them to focus on their job and wait for the volatility to pass but the reality is much, much starker, we'll have a crash and big layoffs," a senior investment banker at a U.S. bank told Reuters.

"It's an act of national self-harm," he added.

Many financial firms rely on the EU's 'passporting' regime to sell their services across all of the bloc while basing the majority of their staff and operations in London.

European government officials had said UK-based firms could lose these privileges after Brexit, a move that could prompt banks to shift some of their operations to Frankfurt, Paris or Dublin if they wanted to serve EU clients.

The Bank of England said it had made contingency plans and will take all necessary steps to meet its responsibilities for financial stability, in conjunction with domestic authorities and overseas central banks.

Some commentators said the volatility would be temporary and would soon subside when international investors drawn by a fall in sterling began to scour financial markets for bargains.

"Whilst some of the market falls are steep, from my long experience having worked through Black Monday, Black Wednesday, the Asian crisis, etc this is not the time for knee jerk reactions," Aberdeen Asset Management co-founder and CEO Martin Gilbert said.

Disappointed supporters of the EU project on mainland Europe said Britain would struggle to keep the same market freedoms that have attracted more than 250 foreign lenders to its shores.

Friday, 24 June 2016

World stocks headed for one the biggest slumps on record on Friday as a decision by Britain to leave the European Union triggered 8 percent falls for Europe's biggest bourses and a record plunge for sterling.

Such a body blow to global confidence could well prevent the Federal Reserve from raising interest rates as planned this year, and might even provoke a new round of emergency policy easing from all the major central banks.

Risk assets were scorched as investors fled to the traditional safe-harbours of top-rated government debt, Japanese yen and gold.

The British pound collapsed no less than 18 U.S. cents, easily the biggest fall in living memory, to hit its lowest since 1985. The euro in turn slid 3.2 percent to $1.1012 EUR= as investors feared for its very future.

Having campaigned to keep the country in the EU, British Prime Minister David Cameron confirmed he would step down.

Results showed a 51.9/48.1 percent split for leaving, setting the UK on an uncertain path and dealing the largest setback to European efforts to forge greater unity since World War Two.

Sterling sank a staggering 10 percent at one point and was last at $1.3582 GBP=, having carved out a range of $1.3228 to $1.5022. The fall was even larger than during the global financial crisis and the currency was moving two or three cents in the blink of an eye.

"It's an extraordinary move for financial markets and also for democracy," said co-head of portfolio investments of London-based currency specialist Millennium Global Richard Benson.

S&P 500, Nasdaq futures slump 5 percent as Britons vote to leave EU
"The market is pricing interest rate cuts from the big central banks and we assume there will be a global liquidity add from them in the next few hours," he added.

The shockwaves affected all asset classes and regions.

The safe-haven yen sprang higher to stand at 102.15 per dollar JPY=, having been as low as 106.81 at one stage. The dollar peak decline of 4 percent was the largest since 1998.

That prompted warnings from Japanese officials that excessive forex moves were undesirable. Indeed, traders were wary in case global central banks chose to step in to calm the volatility.

The Bank of England said it would take all necessary steps to shield Britain's economy. A source told Reuters it was in touch with other major central banks. The Bank of Japan Governor Haruhiko Kuroda added his bank was also ready to provide liquidity if needed to ensure market stability.

Other currencies across Asia and in eastern Europe as it woke up suffered badly on worries that alarmed investors could pull funds out of emerging markets. Poland, where many of the eastern Europeans in Britain come from, saw its zloty PLN= slump 5 percent.

RECESSION FEARS

Europe's natural safety play, the 10-year German government bond, surged to send its yields tumbling back into negative territory and a new record low.

Financial markets have been gripped for months by worries about what Brexit, or a British exit from the European Union, would mean for Europe's stability.

"Obviously, there will be a large spill-over effects across all global economies if the "Leave" vote wins. Not only will the UK go into recession, Europe will follow suit," was the gloomy prediction of Matt Sherwood, head of investment strategy at fund manager Perpetual in Sydney.

Investors duly stampeded to sovereign bonds, with U.S. 10-year Treasury futures jumping over 2 points in an extremely rare move for Asian hours.

Yields on the cash note fell 24 basis points to 1.49 percent, the steepest one-day drop since 2009 and the lowest yield since 2012.

As investors sought safer assets, the rally even extended to UK bonds, despite ratings agency Standard and Poor's warning it would likely downgrade the country's triple A rating if it left the EU.

Yields on benchmark 10-year gilts fell 27 basis points to 1.108 pct.

Across the Atlantic, investors were pricing in even less chance of another hike in U.S. interest rates given the Federal Reserve had cited a British exit from the EU as one reason to be cautious on tightening.

"It adds weight to the camp that the Fed would be on hold. A July (hike) is definitely off the table," Mike Baele, managing director with the private client reserve group at U.S. Bank in Portland, Oregon.

Fed funds futures <0#FF:> were even toying with the chance that the next move could be a cut in U.S. rates.

Commodities likewise swung lower as a Brexit would be seen as a major threat to global growth. U.S. crude shed $3.00 to $47.11 a barrel in erratic trade while Brent fell as much as 6 percent to $47.83 before clawing back to $48.18.

Carnage came to global markets on Friday as results of an historic referendum showed Britain had voted to leave the European Union, sending sterling on a record plunge and pummelling equities across the world.

Such a body blow to global confidence could well prevent the Federal Reserve from raising interest rates as planned this year, and might even provoke a new round of emergency policy easing from all the major central banks.

Risk assets were scorched as investors fled to the traditional safe-harbors of top-rated government debt, Japanese yen and gold.

The British pound collapsed no less than 18 U.S. cents, easily the biggest fall in living memory, to hit its lowest since 1985. The euro in turn slid 3.1 percent to $1.1022 EUR= as investors feared for its very future.

Nearly complete results showed a 51.8/48.2 percent split for leaving, setting the UK on an uncertain path and dealing the largest setback to European efforts to forge greater unity since World War Two.

Sterling sank a staggering 10.1 percent to $1.3387 GBP=, having carved out a range of $1.3228 to $1.5022. The fall was even larger than during the global financial crisis and the currency was moving two or three cents in the blink of an eye.

"It's back to the future, we're back to where we were in 1985," said Nick Parsons, co-head of global currency strategy at NAB in London.

"We've had a 10 percent decline in six hours. That's simply extraordinary, and a vote to leave provides an existential crisis for Europe."

The shockwaves affected all asset classes and regions.

Hong Kong shares plunge on Brexit fears; China stocks slip

The safe-haven yen sprang higher to stand at 101.34 per dollar JPY=, having been as low as 106.81 at one stage. The dollar decline of 4 percent was the largest since 1998.

That prompted warnings from Japanese officials that excessive forex moves were undesirable. Indeed, traders were wary in case global central banks chose to step in to calm the volatility.

Bank of Japan Governor Haruhiko Kuroda said the bank was ready to provide liquidity if needed to ensure market stability and a source said the Bank of England was in touch with other major central banks ahead of the market open there.

Other currencies across Asia suffered badly on worries that alarmed investors could pull funds out of emerging markets.

Financial markets have been racked for months by worries about what Brexit, or a British exit from the European Union, would mean for Europe's stability.

"Obviously, there will be a large spill over effects across all global economies if the "Leave" vote wins. Not only will the UK go into recession, Europe will follow suit," was the gloomy prediction of Matt Sherwood, head of investment strategy at fund manager Perpetual in Sydney.

Investors duly stampeded to sovereign bonds, with U.S. 10-year Treasury futures jumping over 2 points in an extremely rare move for Asian hours.

Yields on the cash note fell 24 basis points to 1.49 percent, the steepest one-day drop since 2009 and the lowest yield since 2012.

The rally did not extend to UK bonds, however, as ratings agency Standard and Poor's has warned it would likely downgrade the country's triple A rating if it left the EU.

Yields on 10-year gilts were indicated up 20 basis points at around 1.57 percent meaning higher borrowing costs for a UK government already struggling with a large budget deficit.

Across the Atlantic, investors were pricing in even less chance of another hike in U.S. interest rates given the Federal Reserve had cited a British exit from the EU as one reason to be cautious on tightening.

"It adds weight to the camp that the Fed would be on hold. A July (hike) is definitely off the table," Mike Baele, managing director with the private client reserve group at U.S. Bank in Portland, Oregon.

Fed funds futures <0#FF:> were even toying with the chance that the next move could be a cut in U.S. rates.

Commodities likewise swung lower as a Brexit would be seen as a major threat to global growth. U.S. crude shed $3.00 to $47.11 a barrel in erratic trade while Brent fell 6 percent to $47.83.

British markets plunged on Friday, with sterling hitting a 31-year low in its biggest fall on record and UK stock futures pointing to a steep fall at the market open after Britons voted to leave the European Union.

Bonds also sold off sharply, pushing UK government borrowing costs sharply higher, as traders and investors grappled with the market implications of 'Brexit'.

The pound had hit a 2016 high above $1.50 after an earlier opinion poll showed an outcome in favour of 'Remain', but fell nearly 17 cents from that peak as area counts came in and TV stations said the Brexit camp had won the landmark referendum.

The British currency's fall of almost 10 percent was also historic, marking a decline greater than anything seen since free-floating system of exchange rates was introduced in the early 1970s.

It was even bigger than on 'Black Wednesday' in 1992, when billionaire financier George Soros was instrumental in pushing the pound out of the Exchange Rate Mechanism.

London bankers working through the night said they hadn't seen anything like the volatility sweeping across UK assets.

"It's back to the future, we're back to where we were in 1985," said Nick Parsons, co-head of global currency strategy at NAB.

Sterling may fall to $1.25, dollar to 90 yen after UK vote - Morgan Stanley
"We've had a 10 percent decline in six hours. That's simply extraordinary, and a vote to leave provides an existential crisis for Europe," he said.

Sterling fell as low as $1.3305, its weakest level against the dollar since September 1985. It fell 6 percent against the euro and 15 percent against the yen.

The cost of insuring against swings in the sterling/dollar exchange rate jumped to 53.375 percent, the highest since at least 1998, and stock futures pointed to a fall of 7 percent at the London open.

Banks are likely to be in the spotlight after the Hong Kong listings of HSBC and Standard Chartered plunged as much as 10 percent in Asian hours.

Bond trading platform Tradeweb opened earlier than usual on Friday, and initial data showed a jump in benchmark 10-year UK government bond yields to 1.57 percent from around 1.38 percent late Thursday.

The referendum's market impact was global. U.S. Treasury yields fell sharply as investors rushed to the safety of U.S. government debt, while other safe-haven assets like gold and the Japanese yen jumped.

All the major international and British banks in London, including Citi Deutsche Bank, JPMorgan, Goldman Sachs and Barclays had traders either working through the night or on call.

Asia policymakers ready to act as Brexit vote roils markets
On Citi's foreign exchange desk in London, dealers were only accepting voice orders and only desk heads had the authority to approve trades, according to a source at the bank.

Banks had warned clients about volatile trading conditions around the results which may lead to large gaps in prices. Barclays stopped accepting new "stop loss" orders as of 0600 GMT, an extremely rare move for one of the big six banks that dominate the world's biggest financial market.

Investors are now bracing themselves for possible intervention from central banks or finance ministries to stabalise markets. So far, there has been nothing concrete, market sources said.

The referendum on whether to quit the EU was bitterly contested, and polarized the nation. Financial markets, on edge for weeks over the uncertain outcome, had rallied on the strength of late polls that showed a swing towards staying in, perhaps setting them up for the steep fall.

"Those big money bets in the lead-up to yesterday's vote look to have been rather premature," said Michael Hewson, chief market strategist at CMC Markets.

The three major U.S. stock indexes rose about 1 percent each to record their biggest percentage gains in a month as investors grew confident that Britain would choose to remain in the European Union in Thursday's referendum.

Markets across the globe have been rattled over the past two weeks as investors speculated about the consequences of Britain's exit, including the unraveling of the bloc.

The "Remain" camp has found 52 percent favor, according to an Ipsos MORI poll conducted on Tuesday and Wednesday. The final result of the referendum will be known on Friday.

U.S. markets also took solace in Fed Chair Janet Yellen's two-day testimony this week when she expressed optimism about the economy and downplayed the chances of a recession this year.

"Regardless of the outcome in the UK, we will see a relief rally in the U.S. today and tomorrow," said Mohannad Aama, managing director, Beam Capital Management in New York.

"I think we'll continue to go up tomorrow even if a "Leave" vote prevails because there's a lot of money in the sidelines ... and that will be routed to safer havens and that includes U.S. stocks."

The sterling hit a year-high on Thursday while gold, which had gained favor amid uncertainty in the past month, dropped to a two-week low.

Oil prices rose despite a smaller-than-expected draw on U.S. crude as appetite for risky assets increased.

Thursday, 23 June 2016

Sterling climbed to a 2016 high and world stocks rose for a fifth day running on Thursday, as British voters headed to the polls for a referendum on their European Union membership.

Financial markets have been racked for months by worries about what Brexit would mean for Europe's stability, but the latest opinion polls show the "Remain" camp holding a small lead, providing some comfort.

The pound, which has been the lightning rod for opinion on the EU referendum throughout the six-month campaign, was up 1 percent at $1.49 GBP=D4 as traders cut their bets on volatility after the vote.

Wall Street was expected to open up much as 1 percent and MSCI's 46-country All World index was at its highest in almost two weeks .

"You look at the markets and they expect a `Remain' win. Cable (sterling/dollar) at $1.49 this morning tells you it all," said Societe Generale FX strategist Alvin Tan.

With the polls still tight and having proved unreliable in Britain's general election last year, caution remained however.

Share trading across Europe was just a third of its normal level. Trading in Britain's FTSE .FTSE was two-thirds lower than average, Reuters data showed. (here)

Elsewhere, Norway's crown jumped to a 10-day high as its central bank kept interest rates steady.

Traders were also digesting June's euro zone PMI data. They showed a slowdown in service industry growth more than offset greater manufacturing activity.

That came a day before the results of the take-up for the European Central Bank's recently revamped long-term loans. It is now effectively paying banks to lend the cash they take on to the euro zone's firms and consumers.

Greek bonds got only a modest lift after the ECB said on Thursday it would accept them as loan collateral again but would only "examine" adding them to its 1.7 trillion- euro asset-buying program.

NOT SO VOLATILE TIMES

In the United States, weekly jobless claims data will help fill the wait until the Brexit results, which are not expected until a few hours before European markets open on Friday.

Overnight, Asia had nudged up a modest 0.3 percent. A drop Chinese markets was offset by a gain of nearly 1 percent for Tokyo's Nikkei .N225.

Before the British vote, exchanges, market regulators and banks moved to tighten risk-management systems. Singapore's stock exchange said it has raised the amount of cash companies must pledge to cover trading positions Central banks have said they stand ready to pump in emergency cash.

"Most people at this point expect a rise in the market," anticipating Britain will vote to stay in the EU, said Isao Kubo, an equity strategist at Nissay Asset Management. "But you never know, and it will be clear by tomorrow, so you don't want to take new positions now."

The Brexit uncertainty kept safe-haven government bonds firm. Ten-year German and Japanese bonds were yielding 0.05 percent and 0.13 percent respectively compared with 1.33 percent for British Gilts and 1.70 percent for U.S. Treasuries.

Elsewhere, the mood seemed less cautious. The main market "fear-gauge", the VIX volatility index .VIX, dropped the most in a month as safe-haven gold XAU= fell to a two-week low of $1,260 an ounce.

Demand also faded for another safe haven, the yen. The dollar jumped more than a full yen to 105.74 yen JPY= and the euro gained more than 2.5 percent to 120.67 yen in its biggest jump since December

The euro zone currency also climbed against the dollar, briefly breaking $1.14 EUR=. That pushed the dollar index, which tracks the U.S. currency against six rival currencies, down 0.5 percent. .DXY.

"Everybody is a bit shell-shocked at the way the market has moved so aggressively (towards Britain remaining in the EU)," said Saxo Bank's head of FX strategy John Hardy.

"If you are stuck with a short position, you are being forced out without even knowing the result, but what this also means is that a Brexit result is now a catastrophic risk."

Britain's top share index rose to a two-month high on Thursday as Britons began voting on its membership in the European Union, with recent opinion polls showing the "Remain" camp nudging ahead.

Two opinion polls published late on Wednesday showed signs of a last-minute rise in support for staying in the EU. Investors had mostly feared that a so-called Brexit would damage the economy in Britain and possibly beyond.

"Overnight polls still suggest the result could be very close, although a late tilt towards Remain has helped bolster bullish sentiment on the hope the status quo is maintained and an uncertain outlook will not prevail," said Mike van Dulken and Augustin Eden at Accendo Markets.

The blue-chip FTSE 100 index .FTSE was up 1.7 percent at 6,368.95 points by 0931 GMT, taking gains for the week to 5.6 percent, its biggest weekly advance since December 2011. Trading volumes were running about two-thirds below normal levels.

The mid-morning rise by the FTSE 100 accompanied a rise in sterling.

The index was led higher by a 2.8 percent rise in the UK mining index following an increase in copper prices.

Shares in Glencore rose 4.2 percent, the top gainer in the FTSE 100 index, while Anglo American Rio Tinto and BHP Billiton were up 2.5 to 3.7 percent.

Tesco (TSCO.L) was up 4.1 percent after Britain's biggest retailer reported a second straight quarter of underlying sales growth in the UK. That was the first successive quarterly gain in more than five years, signalling Tesco's recovery is making progress.

"Tesco has maintained the positive momentum it picked up around the beginning of this year, with sales continuing to rise against a challenging retail backdrop," said Laith Khalaf, a senior analyst at Hargreaves Lansdown.

"The elephant in the room is Amazon, which is currently testing out a grocery delivery service for some customers in London; if successful this represents a clear and present danger to the health of UK supermarkets."

United Utilities was the only stock in negative territory, falling 2.4 percent, as its shares traded without the attraction the latest dividend payouts.

Asian stocks were up in hesitant trade on Thursday, as many investors sought shelter in safe-haven assets such as the Japanese yen and government debt as they braced for Britain's vote on its fate in the European Union.

Sterling, the cleanest way to play the "Brexit" trade, climbed to a six-month high against the dollar, cementing an impressive 6 percent rise since last week as investors squared short positions ahead of the referendum later in the day.

While two opinion polls published late on Wednesday, a few hours before voters were due to begin to cast their votes, showed the "Remain" camp nudging ahead in the closely divided campaign, trading activity in Asian hours remained erratic, thin and cautious.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2 percent. Many markets in Asia were flat to slightly negative. Among the big losers were the Indonesian stock market while Japan's Nikkei .N225 led gainers.

Angus Nicholson, market analyst at IG in Melbourne, said that "markets are still incredibly nervous and some sharp market moves are likely over the next 24 hours."

Various market volatility indicators edged higher in the run up to the referendum. A volatility gauge for the Hong Kong stock market .VHSI has climbed to more than 25 compared to around 18 at end of December while the more popular VIX index .VIX approached its highest levels seen this year.

Investors remained largely on the sidelines ahead of the referendum as a closely fought vote meant any large positions taken before the outcome was vulnerable to being stopped out. A Bank of America Merill Lynch fund manager poll last week found investors' cash levels at their highest since November 2001.

Some investors such as George Soros expect the value of the British pound to decline by as much as 15 percent from current levels in the event of a British exit from the EU.

On Thursday, sterling GBP= was changing hands at $1.4796, after hitting $1.4847, its highest against the dollar in 2016.

The demand for the perceived safe-haven yen remained broadly intact with the dollar adding just 0.2 percent to 104.60 yen JPY=, while the euro gained 0.6 percent to 118.64 yen EURJPY=.

"It will be hard for the market to move until the poll results are released. The pound obviously will take center stage. But other European currencies and particularly dollar/yen also bear watching as the pair will reflect swings in risk sentiment," said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo.

Before the vote, exchanges and market regulators moved in to tighten risk management systems. Singapore's stock exchange said it has raised the amount of cash firms must pledge to cover trading positions while central banks stood by to pump in emergency cash.

The euro rose 0.4 percent to $1.13405 EUR=, while the dollar index, which tracks the greenback against a basket of six rival currencies, slipped 0.1 percent to 93.479 .DXY.

Government bonds held firm with ten-year Japanese bonds yielding 0.13 percent while the spread between ten and two-year debt holding firm at 95 basis points.

Crude oil prices rose after settling down more than 1 percent on Wednesday after the U.S. government reported a smaller-than-expected inventory drawdown.

Brent LCOc1 added 0.8 percent to $50.28 a barrel after shedding 1.5 percent on Wednesday, while U.S. crude CLc1 was up 0.9 percent at $49.54 after giving up 1.4 percent in the previous session.

Spot gold XAU= plumbed a two-week low of $1,260.36 an ounce and was last down 0.4 pct at $1,261.24.

Forex market activity quietened down with this being the eve of the Brexit vote and with polls suggesting that the outcome is too close to call. The possible market reactions on Friday, when the result will be know, are clinically polarized -- the one being a sterling and euro risk-on trade and the other being a sterling and euro negative risk-on trade. There is also a likelihood of protracted uncertainty if the Remain side win by only a narrow margin, which would embolden Brixeters to carry on the fight.
[EUR, USD]
EUR-USD has lifted to the upper 1.12s. The pair has been coat-tailing Cable this week in a Brexit-related correlation. Markets are very much in pause mode ahead of Thursday's vote, which presents the euro with significant polarized risk. EUR-USD support is at 1.1235-36 while the Jun-8 high at 1.1415, a six-week peak, provides an upside waypoint.

[USD, JPY]
The yen has settled to a consolidation ahead of tomorrow's Brexit vote, steadying after its recent correction from trend highs as polls should a swing in support for the UK to remain in the EU. The vote is too close to call, and we expect markets to hunker down until the outcome is know on Friday. If it's a Leave vote, expect risk-off in global markets and the yen to surge. Vice verse for a Remain vote. After the relatively upbeat tone of the BoJ's statement last week, the Japanese currency will likely remain biased to rally during bouts of risk aversion in global financial markets. There is also risk of BoJ intervention, both verbal and actual.

[GBP, USD]
Cable has settled lower after logging a five-month high at 1.4784 yesterday, which was the culmination of a four-session rally from levels near 1.4000 that was seen amid a swing in polling support for Bremain. We take have been taking bullish view of sterling, arguing that undecided voters will be more apt to fall on the Remain side of the fence on better-the-devil-you-know psychology. George Soros, who has written an op-ed in the Guardian yesterday, said (aside from warning of cost of Brexit) that the pound would fall by at least 15% in the wake of a vote to leave the EU, which pretty much matches the consensus view in markets. There have also been many forecasts for the FTSE losing some 20% in the wake of Brexit.

[USD, CHF]
EUR-CHF has settled in the low 1.08s after failing to sustain gains above 1.0900. Last week's six-month low at 1.0777 provides a downside focal point into the Brexit vote tomorrow. The SNB said last week, after its quarterly policy review, that it is monitoring the impact of the Brexit issue on the "significantly overvalued" franc.

[USD, CAD]
USD-CAD has remained heavy, under 1.12800 after reversing form last Thursday's high at 1.3086. A rebound in oil prices, which is generally a positive driver for the Canadian dollar, coupled with a broader correction in the U.S. dollar have driven the move.

Wednesday, 22 June 2016

George Soros, the billionaire who earned fame by betting against the pound in 1992, said that a British vote on Thursday to leave the European Union would trigger a bigger and more disruptive sterling devaluation than the fall on Black Wednesday.

Soros used Quantum Fund in 1992 to bet successfully that sterling was overvalued against the Deutsche Mark, forcing then-Prime Minister John Major to pull the pound out of the European Exchange Rate Mechanism (ERM).

Soros, in an opinion piece in the Guardian newspaper, said that in the event of a British exit, or Brexit, the pound would fall by at least 15 percent, and possibly more than 20 percent, to below $1.15 from its current level of around $1.46.

"The value of the pound would decline precipitously. It would also have an immediate and dramatic impact on financial markets, investment, prices and jobs," Soros, who is 85, said in the Guardian.

"I would expect this devaluation to be bigger and also more disruptive than the 15 percent devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors."

Soros, ranked as the world's 23rd richest person by Forbes magazine with a fortune of $24.9 billion, said the Bank of England would not cut rates after a British exit and that there would be few monetary policy tools left to ease a recession or a fall in British house prices.

He also pointed to the "very large" current account deficit in the United Kingdom and said a post-Brexit devaluation would be unlikely to improve manufacturing as trading conditions would be too uncertain to undertake new investments or hire workers.

Hungarian-born Soros said the scale of the sterling devaluation would compare with 1967, when then-Prime Minister Harold Wilson devalued the pound to $2.40 from $2.80.

Speculators, Soros said, would be eager to exploit a Brexit situation to profit.

"Today, there are speculative forces in the markets much bigger and more powerful. And they will be eager to exploit any miscalculations by the British government or British voters," Soros said.

"Brexit would make some people very rich – but most voters considerably poorer," Soros said.

Members of Britain's Leave campaign say some bankers, big companies and politicians are trying to scare British voters with overblown warnings about the financial and economic impact of a Brexit.

Opponents of EU membership say Britain could prosper if it cut itself free from what they portray as a doomed German-dominated project in excessive debt-funded welfare spending.

The world's biggest banks including Citi and Goldman Sachs will draft in senior traders to work through the night following Britain's referendum on EU membership, set to be among the most volatile 24 hours for markets in a quarter of a century.

A vote to leave the European Union on June 23 would spook investors by undermining post-World War Two attempts at European integration and placing a question mark over the future of the United Kingdom and its $2.9 trillion economy.

Citi, Deutsche Bank, JPMorgan, Goldman Sachs, HSBC, Barclays, Royal Bank of Scotland and Lloyds are among those banks planning to have senior staff and traders working or on call in London as results start to dribble in after polls close at 2100 GMT, according to sources.

"British voters are now grossly underestimating the true costs of Brexit," Soros said. "Too many believe that a vote to leave the EU will have no effect on their personal financial position. This is wishful thinking."

Stocks and sterling rose while traditional safe-haven assets gold and bonds slipped on Wednesday, as investors were guardedly optimistic about a "Remain" vote in Britain's European Union referendum later this week.

Riskier markets also drew support from Federal Reserve Chair Janet Yellen's cautious comments on the U.S. economy the previous day, in which she virtually ruled out a July rate hike.

Europe's FTSEuroFirst index of 300 leading shares was up 0.1 percent .FTEU3, Germany's DAX was up 0.5 percent .GDAXI, France's CAC 40 was up 0.3 percent and Britain's FTSE 100 was up 0.1 percent .FTSE.

Basic resource stocks were among the biggest gainers in Europe, lifted by oil's rise of almost 1 percent.

U.S. futures pointed to a rise of 0.1 percent at the open on Wall Street following on from Tuesday's 0.27 percent rise on the S&P 500 Index.

The strength of the Japanese currency, often considered a safe haven asset, countered the broader increase in risk appetite across financial markets a day before Britain's EU referendum.

"Although the Remain camp has managed to stem the recent wave of support for the Brexiteers, the outcome is still very much uncertain and trading is likely to be sporadic and volumes thin in the next two sessions," said Kathleen Brooks, research director at Gain Capital.

"With the EU referendum on a knife-edge, the market is right to look elsewhere for direction. Some of this came from Yellen, who reinforced (the) message that the Fed will slow the pace of rate hikes if the U.S. economy posts another dismal jobs report for June," she said.

Sterling rose around 0.5 percent against the dollar above $1.47 GBP=, edging back up towards Tuesday's near six-month high of $1.4781. The pound has risen 5 percent since hitting a three-month low of $1.4010 on Thursday.

The polls are extremely close, but betting patterns with bookmakers have shown a re-opening of the gap in favour of "Remain" after the murder last week of a pro-EU lawmaker was deemed to have derailed the Brexit campaign.

For the latest Reuters news on the referendum including full multimedia coverage, click

Fed chief Janet Yellen said on Tuesday that the risk of Brexit was something that needed watching "very carefully", but added that the central bank's ability to raise interest rates this year may hinge on a rebound in hiring.

"A couple of months ago, Yellen was cautiously optimistic. Now she appears cautious while trying to be optimistic," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.

"Judging from her comments, a rate hike in July is completely off the table. It is questionable whether the Fed can have enough solid economic data to back up a rate hike even by September," he said.

The dollar slipped 0.3 percent against the yen JPY= to 104.47 yen, and the euro was last up 0.2 percent at $1.1265 EUR=.

European Central Bank President Mario Draghi said on Tuesday that Britain's referendum was adding uncertainty to markets, and that the ECB was ready to act with all instruments if necessary.

As investors grew more hopeful of a "Remain" vote, spot gold XAU= languished, falling 0.2 percent to a near-two-week low of $1,262 an ounce.

On the other hand, oil prices extended their recovery after news of a larger-than-expected draw in U.S. crude stockpiles.

Crude inventories fell by 5.2 million barrels for the week ended June 17, the American Petroleum Institute (API) said. The trade group's figures were triple the draw of 1.7 million barrels forecast by analysts in a Reuters poll. API/S

Sterling pulled away from a 5-1/2-month high against the dollar on Tuesday after a poll showed the campaign for Britain to stay in the European Union has lost some of its lead ahead of Thursday's referendum on EU membership.

The telephone poll, which was conducted by Survation for spread-betting firm IG on Monday, put support for "In" at 45 percent, ahead of "Out" on 44 percent, IG said. Survation's previous survey, published late on Saturday, had shown "In" on 45 percent, 3 points ahead of "Out".

Having earlier surged to $1.4788, its highest since the start of the year, sterling trimmed some of its gains to trade at $1.4708 by 1325 GMT.

That still left it 0.2 percent up on the day, having risen over 2 percent on Monday, its biggest one-day rise since 2008, as worries about a Brexit receded.

Two opinion polls on Monday had suggested that the "Remain" camp had recovered some ground ahead of Thursday's referendum on EU membership, following the murder of a pro-EU lawmaker, though at third put those wanting to leave slightly ahead.

"Markets are quite fixated on any shift in sentiment," said UBS Wealth Management currency strategist Geoffrey Yu. "All (sterling) needed was a catalyst – perhaps this (the new poll) was what people were waiting for to take some longs off or to let the short-covering come to a brief halt for a while."

"But I wouldn't read too much into it - judging by where implied volatility is in sterling, it's only natural that it's going to be quite volatile, with trade outside of its usual parameters," Yu added.

The cost of one-week sterling/dollar implied volatility, derived from an option that covers the referendum and its results, hit a record high of more than 50 percent on Friday but eased to about 38 percent by Tuesday - still higher than any time during the financial crisis of 2008-2009.

STERLING VULNERABLE

Brexit worries have dominated sterling since late last year. Britain's hefty current account deficit - 7 percent of output in the last quarter of 2015 - makes the economy particularly vulnerable to any pull-back in investment flows, which economists reckon would happen if Britain votes to leave the EU.

But while polls continue to show the outcome of the referendum as too close to call, bookmakers and online betting exchanges - closely watched by investors - are more confident, offering odds implying around a 76 percent chance of a vote to stay in the EU.

"The pound is massively vulnerable if there is a vote to leave," said Rabobank currency strategist Jane Foley. But she added that even a vote to stay in the EU could lead to a long spell of that most disliked phenomenon, political uncertainty, unless the "In" camp secures an emphatic victory.

"A lot of uncertainty will remain, and that could mean that sterling's rally could fizzle out at some point really quite soon," she said.

Societe Generale macro strategist Kit Juckes said that although he still expected a considerable "relief rally" if Britain votes to stay in the EU, the fall in the event of a Brexit would be of a greater magnitude.

George Soros, the billionaire who earned fame by betting against the pound in 1992, said in an opinion piece published by the Guardian newspaper that a Brexit would trigger a bigger and more disruptive sterling devaluation than the fall on Black Wednesday 24 years ago.

Soros said a vote to leave could see the pound fall by at least 15 percent, and possibly more than 20 percent.

Against the euro, the pound rose half a percent on the day to trade at a three-week high of 76.57 pence. It had also recorded its biggest daily rise since 2009 against the single currency on Monday.

Wall Street gave up some gains on Tuesday after Federal Reserve Chair Janet Yellen said the central bank would be cautious in raising interest rates given risks such as Britain's membership in the European Union and a slowdown in the U.S. labor market.

"The pace of improvement in the labor market appears to have slowed more recently, suggesting that our cautious approach ... remains appropriate," Yellen said.

"The Fed's normalization plan in raising interest rates is being met head on with an economic slowdown and collapsing long-term interest rates," said James Abate, chief investment officer at Centre Asset Management in New York.

"The Fed is praying for the economy to buck the business cycle downturn that it is in."

Yellen is also scheduled to attend a meeting at 4:30 p.m. ET with other Fed officials.

At 10:37 a.m. ET, the Dow Jones Industrial Average .DJI was up 18.39 points, or 0.1 percent, at 17,823.26.

The S&P 500 .SPX was up 2.9 points, or 0.14 percent, at 2,086.15.

The Nasdaq Composite was up 3.79 points, or 0.08 percent, at 4,841.00.

Five of the 10 major S&P sectors were lower, led by a 0.37 percent fall in the materials index

Energy stocks were weighed down by a more than 2.2 percent fall in oil prices. Exxon fell 0.4 percent and was the biggest drag on the S&P.